Tax paid in USA--Treated as "Advance Tax" per DTA with US

Advance Tax was paid outside India through its branches in USA and claims it as advance tax paid in India. CIT allows the same to be set off against the tax liability in India, and considered the same as “advance tax” for the purpose of Indian Tax Laws, though the term “advance tax” was not used in the DTA with USA. The fact that it was paid in the current financial year and the same would have been treated as advance tax in India. So there was no interest chargeable u/s 234B

Need to review, if AMT (Alternate Minimum Tax) would have been paid in US, would credit of the same be available in India.

THE DEPUTY COMMISSIONER OF INCOME TAX
C C I, HYDERABAD
Vs
M/s SATYAM COMPUTER SERVICES LTD
SECUNDERABAD

These appeals by Revenue are directed against the orders dated 31st October 2006 of the learned Commissioner of Income-tax (Appeals)-I, Hyderabad for the assessment years 1998-99 & 2005-06.

2. As common grounds are raised in these appeals by the revenue, they are taken up together and disposed of by a common order for the sake of convenience. The common grounds taken are reproduced below:

1. On the facts and circumstances of the case, the learned CIT(A) has erred in;

i) Not considering the provisions of section 209 of the Income Tax Act, which lay the procedure for computation of quantum of advance tax payable by an assessee and thereby erroneously held that payment of advance tax in foreign country would have the nature of advance tax?

ii) Not considering the amendment made in section 234B with effect from and thereby against the legislation intention, he directed the benefit to be given prior to
1.4.2007 also, especially for the A.Y. 2005-06.

iii) Not taking the fact into consideration that payment of tax in a contracting state as per DTAA cannot take the shape of advance tax because, for Advance Tax the assessee is supposed to estimate the total income and prepaid taxes thereon to arrive at the installment of Advance tax whereas the TDS in a foreign country is only on the contract receipt pertaining to that specific event.

iv) Ignoring the fact that payment of tax in foreign country is only on the basis of the income earned on a project in that country and without taking into consideration some total income of the assessee in that relevant previous year.

2. Any other ground or grounds that may be urged at the time of hearing.

3. Brief facts of the case are that an amount of Rs.68,13,233/- and Rs.82,53,37,845/- for the Asst. Year 1998-99 and 2005-06 respectively was paid by the assessee in USA which was claimed as advance tax in India under Double Taxation Avoidance Agreement (DTAA). The A.O. treated this amount as advance in the order passed under sec. 143(3) of the Income-tax Act (for short the Act). As the A.O. was of the opinion that the said amount is not advance tax but self-assessment tax for which notices under sec. 154 wee issued and an order u/s. 154 was passed treating the same amount as self-assessment tax. Consequently demand payable including interest was modified. The A.O. was also of the view that in the DTAA there is no clause to treat such payment as advance tax, for which the aforesaid amount was to be treated as self-assessment tax only. He therefore treated the tax paid in USA by the assessee as self-assessment tax and not as advance tax. On appeal, the C.I.T.(Appeals) holding that the amounts paid by the assessee in USA in the financial year relevant to the assessment year 1998-99 is in the nature of advance tax and has to be treated as such, allowed the appeal of the assessee. Aggrieved the revenue is in appeal.

4. We have heard the rival submission and perused the material on record. It is undisputed that the DTAA is silent on the point as to whether to treat the tax paid in USA as advance tax or self-assessment tax. It is also undisputed facts that the entire tax payment made in USA was made within the financial years relevant to the assessment years 1998-99 and 2005-06 and had this been paid in India, the same would have been treated as advance-tax. Moreover the assessee has not delayed the payment of taxes even though the same were paid in USA. When there is no default in payment of taxes there is no question of charging of interest under sec. 234B of the Act. The Explanation introduced by Finance Act 2006 with effect from 1.4.2007 is as under:
" Explanation 1.—In this section, "assessed tax" means the tax on the total income determined under sub-section (1) of section 143 and where a regular assessment is made, the tax on the total income determined under such regular assessment as reduced by the amount of,—

(i) any tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income;

(ii) any relief of tax allowed under section 90 on account of tax paid in a country outside India;

(iii) any relief of tax allowed under section 90A on account of tax paid in a specified territory outside India referred to in that section;

(iv) any deduction, from the Indian income-tax payable, allowed under section 91, on account of tax paid in a country outside India; and

(v) any tax credit allowed to be set off in accordance with the provisions of section 115JAA."

Since the above explanation (1) only provides meaning, to be understood that such meaning was available even prior to 01.04.2007 as held in the case of Dilip N. Shroff Vs. Joint C.I.T. (2007) 291 ITR 519 (SC) =, it was held by the Hon'ble Supreme Court as under:

"The object of an Explanation to a statutory provision is: (a) to explain the meaning and intendment of the Act itself; (b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve; (c) to provide additional support to the dominant object of the Act in order to make it meaningful and purposeful; (d) an Explanation cannot in any way interfere with or change the enactment or any part thereof, but where some gap is let which is relevant for the purpose of Explanation, in order to suppress the mischief and advance the object of the Act, it can help or assist the court in interpreting the true purport or intendment of the enactment; (e) it cannot however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming a hindrance in the interpretation of the same."

Hence, the aforesaid explanation is applicable to the case of the assessee. In view of the above, we hold that the amounts paid by the assessee in USA in the financial years relevant to assessment years 1998-99 and 2005-06 are in the nature of advance-tax and has to be treated as advance-tax. Hence, we uphold the orders of the C.I.T.(A) and dismiss the appeals of the Revenue.

(Pronounced in the Court on 25.04.08.)